Sector Funds

We've already covered the fact that sector funds are invested in a particular industry, and that's what makes them more volatile than more diversified funds. If you like some risk and have the money to lose, you might double your investment in a year and lose it all the next year. Probably the most intelligent approach to sector funds is to ignore them and choose more balanced mutual funds, but it's difficult to ignore the ones that do very well. If you feel attached to a particular sector, check out the funds covering it, read the prospectus on each and then choose the one that's been around a long time (at least five

years, and ten is better) and hasn't had any gigantic downturns. (Bear in mind that 2001 was bearish and everybody lost money. Look at the ones that lost the least.) Consider the P/E ratio and compare it among similar funds in that sector. In short, do everything you can to minimize potential losses by buying the best sector find you can in the same way you would choose the best individual stock you can. Going with a big company like Fidelity gives you some assurance that your sector fund is being managed by experts.

And if you find yourself in a bind because none of the sector funds looks as good to you as a long-lived, highly diversified fund that's returned decent earnings year after year, bow to your intellect and buy that fund instead. Too many people invest in copper because Granddad once ran a copper mine in Peru and told really great stories about it. Nostalgia is not a good reason for sinking your investment money into a risky investment.

In fact, even sexy, high-tech stuff isn't the way to go if it's based on pie in the sky management practices. In 2000, hundreds of sector funds began, and most of them were based on the Internet. Many of these funds disappeared in 2001, along with investors' money.

The energy sector makes for popular funds because oil and gas are still king. But if things like OPEC and oil spills bother you, you can invest in any one of dozens of other sectors.

Sectors

Basic Materials
	Metals -steel, aluminum, etc Chemicals Wood Paper Products
Consumer, Cyclical
	Automotive Clothing Manufacturing Home Construction Hotels Restaurants
Consumer, Non-cyclical
	Alcoholic Beverage Cosmetics & Personal Care Food Healthcare Providers Household Products Medical Supplies Pharmaceuticals Biotechnology
Tobacco Energy
	Oil Natural Gas Power Plants Exploration Equipment
Financial
	Banks Insurance Securities Brokers
Industrial
	Containers and packaging Factory Equipment Heavy Construction Heavy Machinery Waste Management
Retailers
	Apparel Department Stores Specialty Stores
Technology
	Communications Computers Office Equipment Semiconductors (computer chips) Software
Transportation
	Airfreight (Cargo) Services Airlines Railroads Ocean-going Shipping
Trucking Utilities
	Electrical Telephone Natural Gas Delivery Water

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